Indian consortium prepares to enter bidding war for Cove Energy

British company has already received offers from Royal Dutch Shell and PTT Exploration of Thailand

The battle for control of the world’s natural resources intensified on Tuesday when two state-run Indian companies said they were considering entering a bidding war for Britain’s Cove Energy, which has already received offers from Royal Dutch Shell and PTT Exploration of Thailand. PTT is 65% controlled by the Thai government.

A consortium consisting of Indian groups Oil and Natural Gas Corporation (ONGC) and GAIL said they could enter the fray, with sources suggesting they would probably pitch in with a bid worth 245p a share, valuing Cove at around £1.2bn. That compares with Shell’s offer of 195p a share and PTT’s 220p.

Assuming a deal can be clinched at the top end, Cove’s chief executive John Craven, chairman Michael Blaha and finance director Michael Nolan could collect nearly £40m.

Cove’s suitors are strongly attracted by its main asset, an 8.5% stake in the Rovuma River Basin off the coast of Mozambique estimated to contain 30 trillion cubic feet of gas – equal to nearly half of Canada’s proven reserves. East Africa is tipped to become a major natural gas-producing region that could meet surging demand from emerging economies such as India and China.

Cove and its partners plan to build plants to convert Rovuma’s energy into liquified natural gas and ship it to Asia, a prospect that appeals to Shell which has more LNG capacity than any other international resources company. It is eager to exploit its LNG expertise, as well as acquire access to Cove’s assets in Mozambique and Kenya.

Far Eastern energy demand is booming with China alone expected to double its use of LNG by 2015 to 30m tonnes a year; India isn’t far behind according to recent research by ICRA, a research and ratings company.

Following reports, ONGC confirmed it and GAIL “were currently participating in the formal sale process announced by Cove,” but it added: “At this stage, no decision has been made by the consortium whether to make an offer for Cove or the price at which any such offer may be made.”

Shell, which has a market capitalisation of £85bn, and is the favourite in the City to win the bidding contest, said in its offer document that “East Africa is a major prospective hydrocarbon province, which has seen a significant increase in exploration activity in recent years.”

It added: “Shell already has interests in Tanzania, and the acquisition of Cove would mark Shell’s entry into exciting new hydrocarbon provinces in Kenya and Mozambique, with significant potential for new LNG from recent gas discoveries off Mozambique, and further complementary exploration positions in East Africa.”

Cove is the junior partner to US oil company Anadarko in Rovuma, and other stakeholders include two other Indian companies, Bhasrat Petroleum and Videocon Industries.

The Indian bidding consortium’s interest mirrors efforts by Indian steel, power and coal companies to scout for overseas assets to satisfy surging domestic demand. But in the past, Indian firms such as Coal India and ONGC have not been particularly successful in closing large overseas acquisitions and have shied away from bidding wars despite sitting on huge piles of cash.

“They are very cautious in their approach and it takes a lot of time for them to get government approvals while their rivals elsewhere make quick decisions,” said Juergen Maiar, a Vienna-based fund manager with Raiffeisen Eurasien Aktien.

Shares in Aim-listed Cove, which was only formed via a reverse takeover three years ago, have more than doubled since it advertised itself for sale in early January. Cove boss Craven has an MSc in Petroleum Geology from the Royal School of Mines in London and an MBA from Queens University in Belfast.

Any deal must be approved by the Mozambique government. Cove’s shares closed in London up 2.45% at 240p.